Go-Ahead shares up 17% on lower fine over LSER

Shares of Newcastle-headquartered bus and rail giant Go-Ahead Group rose about 17% after the UK’s Department for Transport (DfT) issued a lower-than-expected £23.5 million fine for “a serious breach” of the company’s former franchise agreement for London & Southeastern Railway Ltd (LSER).

In its results for the year ended July 3, 2021, published on February 24, 2022, Go-Ahead recognised a provision of £30 million in its accounts for a potential financial penalty from the DfT in relation to LSER.

Go-Ahead Group had delayed the publishing of its results and temporarily suspended trading in its shares and its bonds after being stripped of the LSER franchise.

The DfT announced on September 28 last year that the Operator of Last Resort would take over the running of LSER services from October 17.

The DfT said the decision followed “an investigation which identifies over £25 million of taxpayer money was not declared by LSER, amounting to a significant breach of the franchise agreement, undermining trust.”

On Thursday, the DfT said the fine is “on top of the £64 million owed to the taxpayer being recovered by the Department for Transport (DfT), after deciding not to renew LSER’s contract in October 2021.”

The DfT said: “In September 2021, the Transport Secretary announced that, following the breach of trust, the franchise would not be renewed with LSER and would be run by the Operator of Last Resort (OLR).

“That announcement came after work conducted by DfT identified evidence showing that, between October 2014 and March 2020, LSER had deliberately concealed over £25 million of historic taxpayer funding relating to HS1, which should have been returned to the taxpayer.

“The review also identified evidence of similar behaviour by LSER during its previous franchise agreement that ran from April 2006 to October 2014.

“Today’s confirmation of the penalty reflects the seriousness of the misconduct over a substantial period and the action taken sends a clear signal to all rail operators that breaches of public trust will not be tolerated …

“In total (including amounts already recovered), DfT is recovering £64 million from LSER in relation to the franchise agreement contraventions outlined in the penalty notice, other balances identified, adjustments to profit share payments and interest owed.

“The penalty notice issued today (17 March 2021) comes on top of this recovery.

“OLR maintains the continuity of passenger rail services if a passenger rail franchise terminates and is not immediately replaced.

“Since OLR took over Southeastern, services have continued as normal and further passenger benefits, including the rollout of Citybeam trains, has continued at pace.”